Editorial: Taxing Hospitals To Death

Gov. Malloy's proposal to allow towns to tax non-profit hospitals for the first time.

Could some hospitals in Connecticut finally get taxed to the point of closing? Their leaders have been warning about this the past few years. New financial information appears to back them up.

The Courant's Dan Haar writes that Connecticut's 28 acute-care hospitals paid more in state tax in 2016 than they made from their operations, after taxes.

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Operating gains and losses measure the core business of a hospital. Mr. Haar looked at financial data from the state Office of Healthcare Access and found that hospitals' collective gains fell by 17 percent in fiscal 2016.

While their post-tax operating surplus fell ("surplus" is better known as "profit" in private business), hospitals' state tax bill grew. Nonprofit hospitals say they are now taxed more than for-profit corporations. Yale New Haven Health says it's become the largest single taxpayer in the state.

The trend isn't healthy. Hospitals need decent operating margins so they can borrow money at a reasonable rate to buy equipment and maintain expensive facilities.

Gov. Dannel P. Malloy's administration argues that hospitals and their executives make a lot of money despite state taxes. But some of them say they can't maintain operating margins at the industry standard of 3 percent.

Though some hospital systems have managed to stay healthy despite the onerous taxes, many showed operating losses in fiscal 2016, Mr. Haar reports. Waterbury Hospital, for example, had a $20 million loss. Waterbury has lost money from operations for four of the last five years.

Unfortunately, in addition to state taxes, Gov. Malloy would now let municipalities also tax hospital-owned real estate. He says hospitals could recoup the money through higher Medicaid reimbursements. But hospital executives say they've already seen that movie and it didn't end well.

That was supposed to be the deal when the state started its provider tax on hospitals five years ago. The state would give the tax money back to hospitals, making the state eligible for higher federal Medicaid payments. But as the state's financial crisis deepened, it increased the hospital tax and kept most of the tax dollars collected for itself.

So there's not a lot of hospital enthusiasm for that plan.

The Consequences

Municipal taxes could be the final nail for hospitals close to the edge, such as Bristol Hospital. "This proposal," said its CEO, Kurt Barwis, earlier this year, "taxes me to death."

Bristol Hospital had a $3 million operating loss in fiscal 2016 after small gains in prior years. Mr. Barwis said Thursday that "I wouldn't have had a loss if there were no hospital tax program."

Hospitals are not simply absorbing the pain of state taxes. A patient with private insurance is paying $650 more every year because of the taxes, the CHA says. "We cost significantly less than other, larger systems. If you force [hospitals like his] to close because you've taxed them to death, you've increased the cost of care to the state of Connecticut," Mr. Barwis said.

There may be too many hospitals in Connecticut, and it may be time to consolidate them. But taxing some of those hospitals out of business doesn't seem the right way to go about it.